SENIOR bankers should go to jail if they break rules and recklessly manage the finances of depositors, a Westminster committee has advised.

A commission on reforming British financial institutions has called for banking bosses to be given custodial sentences under a charge of “reckless misconduct in the management of a bank”.

Recent scandals like the Libor rate-fixing scandal and the mis-selling of payment protection insurance prompted the call for tough new rules on banking.

The cross-party committee of MPs and Lords, which included the Archbishop of Canterbury, slammed the behaviour of the banking industry over recent years.

They called for reforms in their Changing Banking for Good report on standards in the British banking system. The recommendations cover several areas including making senior bankers personally responsible, reforming bank governance and strengthening the powers of regulators to make sure they do their job.

In a reference to Fred Goodwin – the shamed RBS boss who was given a massive pay-off and pension after crashing the bank – the committee recommended bankers should lose bonuses and pensions as well as their jobs in the event of their banks needing a bailout from taxpayers.

The committee said: “Personal accountability is little more than an illusion in many parts of banking – especially at senior levels. For too long, senior figures have appeared to be beyond enforcement.”

The Treasury promised swift action on the commission’s recommendations.

An official said: “Where legislation is needed, we will support it – and the banking bill currently before Parliament can be amended to ensure they are quickly enacted.”

The commission also recommended that RBS be divided into a “good” retail bank and “bad” assets that would be retained by the Government.

The report called on the Treasury to get the best value for the taxpayer in a sell-off.

Chancellor George Osborne was coy yesterday about when he hoped to begin selling off the Government’s stake in RBS and Lloyds Bank.

He said: “We put a lot of our money into these banks. We want to get the money back.”